Should government permits override property rights?

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How would you respond if a neighbor began covering your property with a strange black mold? Once you stopped shouting expletives at him, you’d probably insist that he stop and clean up the damage he’s done. Now imagine that he refused, insisting that the government gave him permission to do it and the damage he’s doing to your property is your problem.

As crazy as that sounds, such arguments are routinely made. In Kentucky, for instance, homeowners near distilleries have noticed a mold growing on everything they own. It’s called “whisky fungus” and it is an unintended byproduct of distilling. In other words, it’s pollution.

As property owners are calling distilleries to account for the damage to their property, the companies are claiming that they can’t be held responsible because they have a federal pollution permit issued under the Clean Air Act. In effect, the companies are asserting that the federal permit eliminates its neighbors’ property rights.

If you own property, you have the right to enjoy it free of trespass or nuisances caused by your neighbors. Thus, under a property rights approach, this pollution problem is easy—the distilleries are violating their neighbors property rights and must stop and repair the damage or buy the rights from them.

Property rights have the added benefit of revealing whether the pollution is a net benefit or a net harm, through the price mechanism. If polluting is worth more to the distillery than it harms the property owner, they can negotiate a mutually beneficial deal that allows it to continue. But if the harm to the property owner is greater than the benefits to the distillery, the pollution will stop (as it should). Thus property rights are effective at regulating environmental impacts.

But what of the distillery’s argument that it has already had to go through a costly and time-consuming federal permit process. Some conservatives endorse the argument that the federal permit preempts property rights, viewing these pollution lawsuits as an additional burden on over-regulated businesses. And they do have a point. Obtaining a federal permit can be frightfully expensive. If it doesn’t shield you from lawsuits, what the hell is it for?

But eroding property rights is the wrong way to go. Modern environmental permitting arose from the perception that property rights are inadequate to prevent excessive environmental degradation. And, in some instances, that’s true. Property rights aren’t very effective at dealing with sources of pollution that distribute across a wide area. Imagine, for instance, addressing climate change by requiring every emitter of greenhouse gases to negotiate with every property owner in the world who would be affected.

But just because there are some cases where property rights may not be enough to solve the problem doesn’t mean that they should be thrown out entirely. For traditional pollution issues, property rights are extremely effective—more so than government regulation. In the whisky fungus case, for example, property rights can insure that beneficial pollution continues and harmful pollution stops because negotiation over those rights reveal prices. Government regulators don’t have access to the information needed to develop these prices, so they have to guess.

And property rights can be made more effective at addressing pollution through other reforms. Class action lawsuits, for instance, can enable property owners to join together to address pollution that affects each of them in small ways but adds up to a great deal. The government can improve or collect information about pollution sources and environmental impacts so that ordinary property owners can better defend their rights.

But what of the costs and time polluters have sunk into federal permits? Some of this is inevitable. Government regulation to address that pollution which property rights cannot should be designed to minimize these burdens as much as possible. But there will always be some cost.

The bigger problem, however, is that government permitting has strayed beyond the areas where it can effectively supplement property rights. Today, government regulators use the permitting process to address pollution problems that property rights can solve more effectively and cheaply. That adds extraordinarily to the costs and delays associated with permitting. The solution is not to sacrifice property rights to permits but to restore permitting to its proper role.